How to Protect a Business Against the Death or Illness of an Owner

One issue that many business owners overlook when setting up is that of what will happen if one of the partners or shareholders dies or can no longer work in the business due to ill health.

It’s understandable that setting up and running a business can be so time consuming that such issues are put on the back burner.  However if something does happen to one of the owners and there isn’t a clear agreement in place as to what happens, then things can get messy, protracted or even nasty.

If a business owner dies or becomes permanently disabled, a written agreement gives the departing owners family and the other business owners certainty.  The family will be sure they are receiving an agreed price for the owners share and the other business owners will have a plan in place to ensure the family receives its money and the business doesn’t suffer financially.

Life insurance is often used to ensure the money is available.  If an event occurs then the insurance proceeds are used to provide the funds to pay out the leaving owner (or his family) meaning the business doesn’t have to sell assets or borrow money.

Some things to consider when putting the agreement and insurance policies in place are:

  •    The type of insurance policies to be used.  Life insurance, TPD insurance and critical illness           insurance policies may all be considered.
  •    The level of cover required
  •    The valuation of the business (and thus each owners share)
  •    Small business capital gains tax concessions
  •    Policy ownership – the business owner, the other owners, a trust or a superannuation fund?

This is a very important issue that requires careful consideration.  Take the time now to book an appointment with a financial planner to start the discussion.


The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.